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Worries mount for UK businesses and consumers as Brexit crisis builds – surveys

Confidence drained away from UK businesses and consumers in August as the Brexit crisis deepened, according to surveys that suggested the political ructions were taking an increasing toll on the economy.

The Lloyds Bank Business Barometer slid to 1% from 13% in July, its lowest level since December 2011, when Britain was struggling to recover from the global financial crisis.

Separately, a survey of consumer confidence from market research company GfK was its joint weakest since mid-2013, driven lower by deepening pessimism about the economy.

The signs of a wilting economy – similar to elsewhere in Europe – raise the stakes for Prime Minister Boris Johnson.

If his gambit of suspending parliament to deliver Brexit on Oct. 31 fails, he may have to fight a national election while the world’s fifth-biggest economy falls deeper into malaise.

“(The surveys) do seem to indicate that the rebound in the third quarter that many of us anticipated on the back of a weak second quarter might be somewhat muted,” Peter Dixon said.

Britain’s economy shrank in the second quarter, a hangover from the stockpiling boom in advance of the original March Brexit deadline. Another contraction in the current quarter would officially herald a recession.

“It’s a fairly weakish environment, what with global problems and of course our own domestic issues to worry about,” Dixon added.

Business confidence declined in every region of the United Kingdom, Lloyds said, although the fall was steepest in the manufacturing-heavy East Midlands region of England.

British manufacturers, who account for about 10% of the economy, are facing the possibility of a no-deal Brexit which is likely to hurt their supply chains, plus a slowdown in the global economy.

CONSUMER CONSTERNATION
Separate data added to signs the housing market, which slowed sharply after the 2016 Brexit vote, is stabilising.

British banks approved the greatest number of mortgages in two years during July, the Bank of England said, while mortgage lender Nationwide reported house prices increased at the fastest annual pace in three months.

At -14, the GfK survey was the weakest since January, before which it had been lower only in mid-2013. All the survey’s components, including the outlook for personal finances and the economy, declined in August.

“Until Brexit leaves the front pages – whenever that will be – consumers can be forgiven for feeling nervous not just about the wider economy but also about their financial situation,” Joe Staton, client strategy director at GfK, said.

Another poll of consumers from U.S. bank Citi and pollsters YouGov showed inflation expectations among consumers for year ahead rose to their highest level since 2013.

“The increase could be driven by rising chances of a rupture with the EU on Oct. 31, which could lead to higher consumer prices via tariffs, supply disruptions and weaker sterling,” Citi economists said in a note.

By Andy Bruce

Source: UK Reuters

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UK house prices remain stagnant as no-deal Brexit looms

UK house prices grew at less than one per cent for the ninth month in a row in August, Nationwide figures revealed today, prompting calls for Boris Johnson to slash stamp duty.

The value of homes did not grow between July and August, Nationwide’s House Price Index found.

But they did grow 0.6 per cent on an annual basis and 0.3 per cent over the last three months.

However, UK house prices slipped to an average price of £216,096 in August, down from July’s £217,663.

Nationwide warned that Brexit uncertainty is weighing the market down despite healthy economic signals.

“While house price growth has remained fairly stable, there have been mixed signals from the property market in recent months,” Robert Gardner, Nationwide’s chief economist, said.

No-deal Brexit threat weighs down UK house prices
While mortgage approvals have been stable and new buyer enquiries have improved, UK consumer confidence slumped in August as a no-deal Brexit looms.

The threat of Brexit uncertainty will continue to cloud the UK housing market, Gardner added.

“Housing market trends will remain heavily dependent on developments in the broader economy,” he said.

“In the near term, healthy labour market conditions and low borrowing costs will provide underlying support, though uncertainty is likely to continue to exert a drag on sentiment and activity.”

Howard Archer, chief economic adviser to the EY Item Club, added: “With the economy struggling and the outlook currently highly uncertain, we suspect that house prices will remain soft despite the recent pick-up in housing market activity – which could well prove temporary.”

Could Boris Johnson cut stamp duty?
Prime Minister Boris Johnson is yet to announce his domestic agenda since he took power in July, but he is reportedly considering slashing stamp duty to boost UK house prices.

This couldn’t come soon enough, according to experts, who believe it would help lift housing stock supply and boost house price value as Johnson takes the UK closer to a no-deal Brexit.

Guy Harrington, chief executive of property lender Glenhawk, said: “The need for more stock is as urgent as ever and the government would be foolish not to address stamp duty relief as a priority.”

Archer added: “Housing market activity – and possibly to a lesser extent prices – could be given a lift in 2020 if the government cuts stamp duty significantly in the Budget later this year.”

Kevin Roberts, director of the Legal & General Mortgage Club, added: “The critical issue is that there are simply not enough homes to meet the demand from consumers, whether people buying their first property or those who want to downsize.”

By Joe Curtis

Source: City AM

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Chancellor urged to revisit stamp duty for landlords

The government is being urged to “do more” to ensure the housing market is able to overcome the impact of Brexit.

Online mortgage broker Mortgages.online is calling on the Chancellor to take further steps in his Spending Round to stimulate the market amid Brexit uncertainty, pointing to the buy-to-let market as the one that requires focus.

Stamp duty in particular needed revisiting it stated after a surcharge of 3 per cent was introduced for second homes in April 2016, closely followed by cuts to mortgage interest tax relief for landlords.

Paul Flavin, managing director of mortgages.online, said: “The increased stamp duty payable on buy to let purchases, and the removal of the ability to offset mortgage costs has put many investors off the property market, with a knock on effect of reducing the stock of rental properties.

“We would encourage the Chancellor to look again at the negative impact these measures have.”

He added that Brexit fears had helped create a general lack of confidence and depressed values, exacerbated by valuers being cautious.

Mr Flavin said: “We have two basic messages for the Chancellor. Relief for buy to let investors and measures to stabilise the economy with clarity once and for all on Brexit, are both needed urgently.

“The alternative is for a continuance of a depressed housing market which is healthy neither for the economy nor the government if an election is on the horizon.”

The call comes after research found a record number of landlords are planning to sell rental property in the next 12 months as their profitability has fallen for the third successive quarter.

Meanwhile yesterday (August 28) the government announced measures to make it easier for people to get on the housing ladder with Help to Buy.

Under the changes, which are taking effect immediately, people will be able to take out longer mortgages than the current 25-year terms.

The move reflects change in the wider mortgage market, where the number of first-time buyers taking out a mortgage of more than 30 years has doubled in the last decade.

Housing minister, Esther McVey MP, said: “We are determined to open up the dream of home ownership to the next generation and our Help to Buy schemes have already been used more than 500,000 times by families to get a leg up onto the property ladder.

“I want our Help to Buy scheme to work for homeowners so we are giving people the freedom and flexibility to take out longer mortgages, if it suits their needs.”

Mr Flavin said: “The extension to 35 years will help many borrowers as their monthly payments will reduce but the Chancellor will need to do more in the Autumn Statement on 4 September if the housing market is to overcome its Brexit blues.”

The government also announced reforms to shared ownership rules that allow homeowners to increase their share at increments of 1 per cent rather than the current 10 per cent.

Mark Hayward, chief executive of NAEA Propertymark, said: “We support thinking creatively about ways to help first time buyers on to the housing ladder and consumers will welcome the opportunity to increase their share of ownership more easily and to simplify the process by which they can sell their homes.

“Government must be careful of the unintended consequences that any changes to Help to Buy could have on the rest of the market as in many cases these are not properties that feed into the general market place but into a ‘cul de sac’ with no assistance to upward activity”.

The Treasury has been approached for comment.

By Jennifer Turton

Source: FT Adviser

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The government to review national model for shared ownership

The government will review a new national model for shared ownership to make it easier for people to buy more of their own home, including allowing them to buy in 1% increments.

Housing Secretary Robert Jenrick (pictured) said that this is among a raft of measures to help people on lower incomes get onto the housing ladder.

Jenrick said: “Building the houses this country needs is a central priority of this government. We know that most people still want to own their own home, but for many the dream seems a remote one.

“My mission is to increase the number of homes that are being delivered and to get more young people and families onto the housing ladder, particularly those on lower incomes.

“That’s why I am announcing radical changes to shared ownership so we can make it simpler and easier for tens of thousands trying to buy their own home.

“Help to buy, the cut to stamp duty and our home-building programmes are already making a real difference, but I am clear we need to go much further if we are to make the housing market work.

“I will be looking at ensuring young people from Cornwall to Cumbria aren’t priced out of their home areas and how we can build public support for more house building and better planning.

“This government will help a new generation to own their home.”

At present, borrowers have to buy an increased share in 10% chunks which can be as much as £45,000 per time.

This process of increasing the stake until the property is bought outright is known as ‘staircasing’.

People use shared ownership to buy a proportion of their home which can be as little as 25% then pay a subsidised rent on the rest.

The Housing Secretary also said he will look to reform the planning system to increase housing delivery and make home ownership more affordable for people looking to buy their first property, particularly in areas which are least affordable.

This could include increasing the number of homes sold at discounted prices to people trying to get onto the property ladder, boosting homeownership and helping build local support for new development.

Homeowners buying a property under help to buy will be given new freedoms which will make it easier to take out a 35-year mortgage.

The government has also closed a loophole with immediate effect that prevented people from taking out a mortgage with a term of more than 25 years.

Ross Hunter from Post Office Money added: “It’s important that we take steps to enable people from a variety of economic backgrounds to find routes on to the housing ladder.

“In 2018, a first-time buyer household income in the UK was £48,289 on average, and the average cost of a property in the UK was £282,713 – it can take years to save for a deposit and 69% of first-time buyers will depend on additional help from their loved ones to save the necessary funds.

“Any step to support people on lower incomes in their journey to realise their aspiration of owning a home is welcome.”

Marc von Grundherr, director of Benham and Reeves, said: “The latest changes to shared ownership are a novel idea from Robert Jenrick but as we’ve seen before through the likes of Help to Buy, an idea that will further fuel demand rather than address any real supply imbalance.

“While helping those in shared ownership will provide a leg up to some, the 200,000 homeowners in this position account for less than one percent of UK properties.

“Reducing the barrier to homeownership via shared ownership properties doesn’t supply more homes and it will be interesting to see if any concrete strategy on doing so comes from this latest government rhetoric.”

By Michael Lloyd

Source: Mortgage Introducer

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UK business pessimistic about economy

The consensus from UK boards is that the combined effects of Brexit, trade wars and consumer slowdown is going to have a negative effect on the UK economy over the next 12 months

More than two-thirds (69%) of respondents from FTSE 350 companies believe that the UK economy will deteriorate in the next year, according to a recent Boardroom Bellweather survey from the Chartered Governance Institute (ICSA) and the Financial Times.

Only 7% expected improvement – a slight uptick in confidence since the end of 2018 when only 2% expected improvements and 81% expected a decline – however still less than pre-referendum, when 24% expected a decline and 13% an improvement.

“The continuing uncertainty about what a post-Brexit Britain might look like, muddled even further at the time of the survey by the Conservative Party leadership contest and differing views with regard to a no-deal Brexit, has undoubtedly contributed to the pessimism that people are feeling,” said Peter Swabey, director of policy and research at ICSA.

Meanwhile, the research found that 40% of respondents thought a no-deal Brexit would be damaging to business, while 40% thought it would not and 20% were unsure.

More generally, 3% of respondents believe leaving is positive, compared to 59% who see it as damaging – down from 73% at the end of 2018 – while the number predicting no change has increased from 28% to 38% since the end of last year.

Swabey suggested that more companies enacting contingency plans might explain why nearly half (49%) of respondents see Brexit as a principal risk and why only 29% have increased inventory in preparation for a no-deal.

However, he noted that the proportion of those considering Brexit as a principal risk has increased since summer 2018 – up from 39%.

“With companies unsure of what trade and non-trade barriers might be in place come the end of the year, it seems evident that they are acting with a certain amount of caution,” Swabey said.

Meanwhile, 51% of respondents expected a decline in global conditions over the next 12 months, while 10% predicted an improvement and 23% thought conditions would stay the same.

“With trade war between the US and China still playing out, over twice as many people now fear a decline [in global economic conditions] than was the case in summer 2018, when just 24% predicted a decline,” Swabey said.

Business optimism in both business and professional services sectors plummeted in the three months to August from -8% to -31%.

The decrease almost matched the decline seen at the start of 2019, according to the Confederation of British Industry (CBI).

Although business volumes stabilised in Q3, businesses expect a decline over the following three months, with respondents pointing to overseas business as a limiting factor.

“UK services firms are operating in a tough environment: activity is sluggish and profits are expected to fall in the coming months. It’s little wonder that business sentiment has plummeted again,” said Rain Newton-Smith, chief economist at CBI.

She described outlook for services companies as “bleak”, pointing to Brexit uncertainty as a dampener on investment and expansion.

“The idea of a no-deal Brexit is clearly weighing down the economy and is affecting businesses both big and small. So the economy can get back on track, the government must re-double its efforts in securing a deal,” she said.

By Danny McCance

Source: Economia

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New build price premiums hit 108% in parts of the UK

How does the cost of a new build home compare to existing housing stock and where are the highest new build property premiums?

Using the latest data from the Land Registry, estate agent Springbok Properties, has found that the current average price of a new build property is £290,176, compared to £224,729 for existing properties, a mark-up of 29%.

The highest premium was found in Scotland with new builds costing 41% more than existing homes, dropping to 36% in Wales, 27% in England and 25% in Northern Ireland.

While it may be expected that a brand new property will carry a higher price tag recent research found that 40% of new-build homeowners were unhappy with the quality of their property.

Highest premiums
The worst town for new build premium is Harlow in Essex where the average new build costs £551,089, which is 108% more than the average cost of £265,249 for existing stock.

Blaenau Gwent is the next worst area, with a 96% mark up between the new build price of £182,313 and the price of existing property (£92,814).

Gravesham in Kent ranks third with a 95% new build premium while Preston in Lancashire is also home to a new build premium of over 90%.

Rochford and Torfaen in Wales are both home to a premium of 88%, followed by Middlesbrough (85%) and West Dunbartonshire in Scotland (85%). Caerphilly and Merthyr Tydfil complete the top 10 worst areas for new build property price premiums in the UK at 81% and 80% respectively.

For once London home buyers aren’t the focus of bad news and on average the difference in price for a new build and an existing property in the capital is just 3%. Newham is the borough home to the largest gap at 38%, with Redbridge (35%) and Barking and Dagenham (33%) also ranking high.

Shepherd Ncube, founder and CEO of Springbok Properties, said: “While there are many new builds that will be delivered to the standard expected, the thought of forking out way above the odds for a property that falls way below standard is a nightmare scenario for the nation’s homebuyers.

“As the figures demonstrate, in some areas, new build properties are going for a hefty market premium and this isn’t confined to one or two locations, it’s the length and breadth of Britain at a range of market values.

“Of course, if there is a need for housing at a higher price band or quality in any area it should be built. However, one has to question the consistent failures of many property developers when delivering these homes to the standard promised while still charging such a high price compared to the rest of the market.”

By Kate Saines

Source: Mortgage Finance Gazette

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Commercial property sales fall for second quarter but Glasgow bucks trend

Commercial property sales values in Glasgow surpassed those of Scotland’s capital for the first time since 2015, new research has found.

Analysis of Q2 2019 data by the Scottish Property Federation (SPF) showed that the total value of commercial property sales in Scotland continued to fall.

At £614 million, sales were the lowest in five years. While sales values fell, the number of transactions increased, indicating a decrease in higher value transactions rather than a lack of activity.

However, Glasgow broke from the national trend with the total value of commercial property sales rising against both the previous quarter and the same quarter in 2018. Sales in Glasgow totalled £172m for Q2, accounting for 28% of Scotland’s total commercial property sales.

Edinburgh lost its dominance to Glasgow in Q2 2019, following a significant fall in the total value of commercial property sales. At £108m, Edinburgh’s sales values decreased by £156m on the previous quarter and £14m on Q2 2018. The proportion of Scottish commercial property sales located in Edinburgh fell from 35% in the previous quarter to just 18% for Q2 2019.

SPF director David Melhuish said: “Glasgow was very impressive this quarter, outperforming Edinburgh for the first time in four years against a wider Scottish market that saw a reduced value of sales activity.

“Glasgow’s sales increase was fuelled by a number of £5m-plus deals, totalling £129m, whereas Edinburgh only secured £33m in the same category.

“A notable feature of Scottish commercial property investment in the Q2 period was the rise of capital sourced from Asia, which topped £250m for the first time on record, according to CoStar data.

“Ryden reported a standout £48m transaction for a Korean client of Knight Frank Investment Management.”

Source: Scottish Construction Now

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Boardroom survey finds fears over UK economy

A majority of business boardrooms are predicting a downturn in the UK economy over the coming year, as Brexit uncertainty and trade war troubles take a toll on corporate confidence.

Almost 70 per cent of respondents from FTSE 350 companies believe that the UK economy will decline in the next 12 months, improving from 81 per cent at the end of 2018 but still remaining significantly below the spring reading in 2016 before Britain voted to leave the EU.

Forecasts about the outlook for companies’ own industries have rallied slightly with 43 per cent predicting a decline, down from 50 per cent last winter, according to the findings from the ‘Boardroom Bellwether’ survey published by The Chartered Governance Institute in association with the FT.

Publicly-listed companies in the UK are on the fence about the effect of no-deal Brexit, today’s report found, with 40 per cent believing it would be damaging, 40 per cent believing it would not and 20 per cent unsure.

“The continuing uncertainty about what a post-Brexit Britain might look like, muddled even further at the time of the survey by the Conservative party leadership contest and differing views with regard to a no-deal Brexit, has undoubtedly contributed to the pessimism that people are feeling,” said Peter Swabey, policy and research director at The Chartered Governance Institute.

Meanwhile, the perception of the UK government as business-friendly has fallen from 29 per cent in summer 2018 to 15 per cent this summer, while the number of respondents viewing the government as not business-friendly has risen sharply from 13 per cent in winter 2018 to 42 per cent.

Despite this, the opposition has not benefited with 81 per cent of respondents viewing Labour as not business-friendly and not one respondent considering that it is, the lowest result since winter 2015 when two per cent believed them to be business-friendly.

“The survey was carried out before Boris Johnson was chosen as the Conservative leader, but it does seem that the business-bashing of recent times has taken its toll. The government must remember that business plays a key part in creating wealth and employment,” said Swabey.

By Sebastian McCarthy

Source: City AM

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‘Record’ number of landlords to leave the market

A record proportion of landlords are planning to sell rental property in the next 12 months as their profitability has fallen for the third successive quarter, according to research.

Research firm BVA BDRC’s Q2 Landlords Panel report, seen by FTAdviser, found more than a quarter (26 per cent) of landlords were planning to sell at least one property from their portfolio in the next year.

According to the report, this was up 8 per cent from the tally measured in the first quarter of this year, three times higher than at the start of 2015 (9 per cent) and the highest level of planned sales the report had ever measured (since 2006).

On top of this, out of the 738 landlords polled in June, just one in seven intended to purchase additional property over the next year.

The most commonly cited reason for wanting to divest property was that it was no longer financially viable or profitable, followed by an increasing burden of legislation alongside “too much hassle/stress for too little return”.

The report also found that net profitability for landlords had fallen for three successive quarters — the first time since tracking began in 2006.

Although net profitability remained high at 80 per cent, this was down from 81 per cent in Q1 of this year, from 84 per cent at the end of 2018 and from 85 per cent in Q3 2018.

This decline was partly down to a fall in rental yields which, according to the report, fell to 5.5 per cent in Q2 — the lowest in nine years. Landlords managing houses of multiple occupancy derived the highest average yield alongside student properties.

But profitability has also been affected by tax and legislative changes which have hit the buy-to-let sector over recent years.

An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.

The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 the relief will be limited to the basic rate of tax, currently 20 per cent.

Consumer site Which predicted landlords’ incomes could drop by up to 57 per cent due to the changes.

Since the changes, purchasing a buy-to-let property through a limited company has become more than twice as popular as buying as an individual as it is seen to be more tax efficient.

Landlords took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.

The government has since announced a proposed abolition of Section 21 orders — so-called ‘no-fault eviction orders — and has banned all tenant fees, meaning estate agents now charge landlords for the entire cost of letting agreements.

Joanna Leyden, director at Monument Financial, said: “The increased regulation for landlords is likely to be a driving factor, although we are still seeing people buying property as an investment.

“It’s possible too that falling property prices in London have made some decide to increase the diversification of their investment portfolio and reduce their exposure to real estate.”

Shaun Church, director at Private Finance, said the number of landlords selling up was a “trend that will continue”.

He thought there were fewer buy-to-let landlords coming into the market and that those within it will looked to move properties into limited companies.

He added: “I think the people coming out the market will be those ‘accidental landlords’. And I do think it will continue as it’s not going to get any better.

“The market has definitely fallen, for us anyway. We’re not doing very many of buy-to-let purchases at all.”

But Craig McKinlay, new business director at Kensington Mortgages, said although there had been many government imposed changes over the last few years, there was still room to be successful in the buy-to-let space.

He said: “The remortgage market remains strong and limited companies are going from strength to strength.

“Brokers and landlords who focus on the right areas can still be successful and access some of the lowest rates ever seen.”

By Imogen Tew

Source: FT Adviser

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UK Finance: Gross mortgage lending increases in July

Gross mortgage lending across the residential market and mortgage approvals both rose in July, UK Finance’s Household Finance Update has found.

Gross mortgage lending across the residential market in July 2019 was £26.1bn, 2.9% higher than the same month in 2018 and the highest since March 2016.

Mortgage approvals for home purchase were 16.4% higher, remortgage approvals were 19.4% higher and approvals for other secured borrowing were 12.7% higher than the same month a year earlier.

Andrew Montlake, managing director of mortgage broker, Coreco, said: “July was our biggest month of the year by a distance and on this evidence we weren’t alone.

“Remortgages were the driving force of the rampant activity levels in July, with households taking advantage of the exceptionally competitive mortgage rates available.

“Lenders are awash with cash and borrowers are making hay while the sun shines.

“First time buyer numbers are also surging, especially among those funded by the Bank of Mum and Dad.

“July was the month when the odds of a no-deal Brexit got a lot shorter and this clearly incentivised people to act.

“Borrowers have become increasingly worried that lenders could easily pull down the shutters in the event of a disorderly Brexit and also increase their rates so they’re getting on with it.

“Similarly, a lot of prospective buyers are wary that house prices could bounce back quite sharply if no-deal proves to be a damp squib and the balance of power swings back to sellers.

“Many people have come to the conclusion that there is as much risk to the wait-and-see approach to Brexit as just getting on with it.”

There were 95,126 mortgages approved by the main high street banks in July 2019, the highest monthly total since July 2009 when the figure stood at 99,970.

Richard Pike, Phoebus Software sales and marketing director, added: “These latest figures from UK Finance are the most encouraging for a while.

“The statistics bear out the regional figures released last week, which showed that across every region, other than in London, mortgage approvals were up.

“Mind you, even in London first-time buyer numbers were up in line with the rest of the country.

“As we know the lending figures for July were for mortgages approved up to three months ago.

“It will be very interesting to see what the figures look like in September and October when the latest HMRC figures showed that property transactions fell considerably in July.”

Gareth Lewis, commercial director of property lender MT Finance, said: “At the back end of the summer holidays, these figures are a nice jump into autumn, and a welcome contrast to the subdued data we have got used to seeing.

“High street banks are lending back at 2009 levels so are loosening their credit a little to encompass more borrowing.

“There is also more demand from people buying property, with home purchases also up, which is great news as it shows transactional flow is happening.”

By Michael Lloyd

Source: Mortgage Introducer